Moody's Rating Agency
When thinking about credit agencies, it is customary to speak first and foremost of the "Big Three," which include Standard & Poor's, Moody's and Fitch RatingsThe most famous and the oldest rating agencies. In some ways their histories are similar, but in some ways they are different. And if in the case of Standard & Poor's the beginning of the path was difficult, but still serene, it cannot be said about Moody's agency...
Moody's Rating Agency: first appearance
Moody's is a rating agencyThe full name is Moody's Investors Service. It is a subsidiary of Moody's Corruption. It is engaged in credit rating, research and risk analysis. It has been reopened twice, which may well be called an unprecedented phenomenon.
Moody's traces its history back to two companies founded by John Moody. In 1900, he published his first market assessment called Moody's Guide to Industrial and Other Securities, and founded John Moody & Company. The publication provided detailed statistics on stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities and food processing companies. It experienced early success, selling its first circulation in the first two months.
In 1907, however, a financial crisis arose, fueled by several global changes in the country's financial structure, including the creation of the Federal Reserve. This created an increased demand for analytical information, especially independent assessments of creditworthiness. The development in the United States of an extensive railroad system led to an increase in the issuance of corporate bonds to finance them and, consequently, to an expansion of the market for these securities, which eventually grew to several times the size of markets in other countries.
After the stock market crash, John Moody was forced to sell his business due to lack of capital.
The triumphant return of Moody's
Moody returned two years later, in 1909, with a new publication, focused exclusively on analysis, for anyone wishing to invest in railroad projects with an assessment of probable risks. It was a great success.
Although Moody acknowledged that the concept of rankings "was not wholly original," he was the first to publish rankings widely and in an accessible format.
Moody was also the first to introduce subscription fees for investors. In 1913 he expanded the guide to include industrial companies and utilities. The new guide also began to offer a rating of government securities.
The following year Moody's Investors Service is founded. Then other rating agencies that were active in the United States, including the forerunners of the "Big Three" international rating agencies: Poor's in 1916, Standard in 1922 and Fitch in 1924, emerge and become more active.
Moody's Investors Service expands its focus on ratings for state and local government bonds in 1919, and by 1924 the agency nominally covers almost the entire U.S. bond market.
Moody's as an investment benchmark
The relationship between the U.S. bond market and international rating agencies was further developed in 1930. Because of the growth of the banking market and the prospects for investment financial projects, investors again called for greater transparency, which led to the creation of the Securities and Exchange Commission (SEC).
As a result, in 1936 a new rule was introduced prohibiting banks from investing in speculative securities ("junk bonds" in modern terminology), which is the starting point for the emergence of separate rating grades more familiar to modern investors. Banks are only allowed to invest in investment grade bonds rated by Moody's, along with a standard rating from Fitch. In the following decades, similar requirements were approved for all agencies.
In 1962, Moody's rating agency was bought by Dun & Bradstreet, a credit information collection and cataloging company. Despite this, the organizations still operate largely independently.
In the late 1960s and 1970s, the number of securities issuers greatly increased, which led to the enlargement of the rating agencies, whose jurisdiction began to extend not only in the United States, but throughout the world.
The activities of rating agencies have become clearly monetized: in 2005, Moody's provided statistics that made it clear that 90% of the international rating agencies' revenues are derived from fees from issuers.
Moody's activities these days
The abolition of the Bretton Woods System in 1971 led to the liberalization of financial rules and the global expansion of capital markets in the 1970s and 1980s.
In 1975, the SEC changed its minimum capital requirements for broker-dealers using the credit rating system. Moody's and nine other institutions (through consolidation, their number was subsequently reduced) were designated by the SEC as "nationally recognized statistical rating organizations" (NRSROs).
In the 1980s, due to the expansion of the global capital market, Moody's opened its first overseas office in Japan (1985), followed by offices in England (1986), France (1988), Germany (1991), Hong Kong (1994), India (1998) and the PRC (2001). The number of bonds assessed by Moody's and the entire "Big Three" agencies has grown significantly.
Not so transparent
However, it would be incorrect to call the agency's work completely serene: in the 1990s and 2000s, its activities attracted more attention, as Moody's was sued and an investigation was initiated by the US Department of Justice, following the collapse of Enron and the mortgage and financial crisis of the following years.
After several years of rumors and pressure from institutional shareholders, Moody's Investors Service was announced as a separate company in December 1999. Although Moody's had fewer than 1,500 employees, it generated more than 51% in profits for Dun & Bradstreet in 1991.
The spin-off was completed on September 30, 2000, and a decade and a half later, Moody's stock price has increased by more than 300%.
Useful Links
- Official website of Moody's rating agency: https://www.moodys.com/
- Moody's Rating Agency in Russia: https://www.moodys.com/pages/default_ee.aspx